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It seems that the general consensus among many property experts is that the real estate "boom" in Australia may be over, but it’s not all doom and gloom.
Daniel Erez, managing director of real estate investment management group Newground Capital Partners, explains why a slowing property market may actually spell good news.
State of the Market
“In recent times we have seen property prices and values flatten or even fall, particularly in metropolitan areas with Sydney experiencing the biggest change,’ Erez said.
“Experts such as CoreLogic predict that housing values could fall as much as 10-15 per cent in Sydney over the next couple of years and drop by 5-10 per cent in Melbourne.
“In other metropolitan areas we expect to see housing prices either stall or grow more modestly than they have.”
And while the residential property market is slowing, the commercial sector faces its own challenges.
“In some areas we are seeing a decline in investment volumes. The high concentration of new apartments in markets such as Brisbane and Melbourne, restrictions on capital flows out of China and reduction of credit into the market have been pointed to as contributing factors.
“What we’re actually seeing is a lack of stock in certain sectors such as office, student accommodation, retail centres and industrial parks.
“At the same time though some investors seem to be sitting back and waiting to see how things play out, and this is taking a bit of heat out of the market.”
Good Times for Investors
Regardless of possible causes, Erez says a slowing market presents new opportunities for investors.
“A key takeaway from the current situation is that the market may be slowing or flattening in some areas, but overall the state of the market is stable.
“We believe we are heading into a prolonged investment cycle with more sustainable growth in the market, and this is great news for investors.”
Erez says this kind of scenario de-risks property investment, because less robust investors, builders and developers are likely to leave the marketplace.
“Established quality developers are likely to be the ones left standing, giving purchasers confidence in the projects they produce.
“Overall, slowing of the market is likely to lead to more predictability and stability when it comes to property values, and this is great news for investors.”
Erez says developers with the right financial backing are likely to use this situation to acquire more sites from exiting developers and consolidate their position in the market.
“When prices start to stabilise, it gives a chance for household incomes to catch up which is a key driver for the housing market.”
No Need to Panic
Since talk about the property market slowing down isn’t likely to go away any time soon, Erez suggests investors think counter-intuitively.
“Predictability and stability is a market you want to operate in. It eliminates a lot of risk and uncertainty. Next time you see the headline that the market is slowing down, take it as a good thing.
“At Newground Capital Partners, we’re continuing to look for opportunities to provide senior construction and mezzanine debt financing for quality projects in Brisbane, Sydney & Melbourne.”